How will an increase in the income of a buyer of a normal good affect its equilibrium price and equilibrium quantity explain with the help of a diagram?

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Solution

For a normal commodity, an increase in income of the consumers means an increase in its demand. Accordingly, the demand curve shifts rightward and both equilibrium price and equilibrium quantity tend to increase. In the given diagram, the actual demand curve DD and actual supply curve SS intersect at point E (i.e. equilibrium point). When the income of the buyer increases, the demand for normal goods also rises and the demand curve shifts rightward from DD to D1D1.

As a result, equilibrium price and quantity both are increased from OP to OP1 and OQ to OQ1

increase income buyer normal good affect equilibrium price equilibrium quantity explain diagram

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